Has the coronavirus affected asset values?

What’s the diffference between price, value and cost?


Pre-pack administrations and asset values

Valuer

 

 

 

 

 

 

 

 

 

All three sound similar and we’ve been guilty for using cost to describe price and vice versa. Value too. Yet their function is entirely different. 

 

The value of a company’s assets for example is not the same as the cost of acquiring them nor is it the same as the price that somebody else would ascribe or pay for them. 

 

This is where the expertise and independence of professional valuation agents proves their real value – especially to businesses in administration.

 

Their job is simple yet critical – to assign a reasonable market assessment on the value of a company’s assets to better assist potential buyers hoping to purchase them as part of a pre-pack administration, as has recently happened with brands such as Laura Ashley and Cath Kidston.

 

It’s also to give certainty to creditors and the administrator that their interests would also be fairly represented. 

 

In pre-coronavirus times, they’d be personally inspected by an independent valuer but like so many other essential commercial tasks, this methodology is under threat. 

 

The Royal Institute of Chartered Surveyors (RICS) has contacted all of its members to advise them on operating in the current environment. 

 

They recognise that because access to properties and physical assets will be limited, they have to agree with clients any changes to their usual methods of inspection and valuation. 

 

This means including “material valuation uncertainty” declarations in their reports according to their universal red book guide of industry standards. 

 

This states that they don’t feel able to give a formal final evaluation of property value and must notify all interested parties that that is their lawful declared position.

 

Ben Elder, RICS International Director for Valuation, addresses the issue: “The current unprecedented circumstances are challenging for everyone. 

 

“RICS expects its members and firms to act professionally and transparently at all times and this is particularly important when market conditions are changing rapidly.

 

“If material uncertainty is declared, this should be explicitly stated, and RICS has suggested today a form of wording that can be used following the Red Brook Process. 

 

“These are to assist where a valuer feels that the unknowns are so significant that the valuation produced would be less reliable than in normal circumstances”.

 

The specific wording released includes “less certainty – and a higher degree of caution – should be attached to our valuation than would normally be the case. 

 

“Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep the valuation of the property under frequent review.”

 

This is important as the opinion and valuation of an independent valuer represents the middle ground that the administrator and buyers should meet on and find mutually acceptable agreement.  

 

Valuations tend to be the foundations that underpin any agreement so if these are now open to reasonable doubt then it can be an impediment to an administrator looking to complete a swift and successful administration. 

 

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Administration is never an easy option and has never been a get-out-of-debt-jail free card to play whenever directors are bored and feel like they’d like to have another go at running a business. 

 

It’s an essential tool to help restructure and rescue otherwise profitable and solid companies that can be saved or to realise the debts owed to creditors who lent and invested the money in good faith of repayment. 

 

The coronavirus pandemic and response is a challenge to every company looking to remain in business and to every insolvency practitioner that can guide them. 

 

Get in touch with us today if you feel like an expert advisor could help you plan a better future for you and your company. 

 

If you value your business then the sooner you decide to make contact with us, the more options and choices you’ll generally have available. 

 

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